Aktia REMB covered bonds achieve highest rating

May 29th, 2015

Moody’s upgraded the rating of covered bonds issued by Aktia Real Estate Mortgage Bank (REMB) from Aa2 to Aaa yesterday (Thursday), following the introduction of Counterparty Risk (CR) assessments to its methodology.

AktiaBack in 2012 an expected Moody’s downgrade had contributed to Aktia Bank deciding to issue on a standalone basis rather than through Aktia REMB. The Aktia REMB covered bonds were then, in October 2012, cut to Aa3.

The Aktia REMB covered bond rating had this year been under review after Moody’s updated its bank rating methodology. As part of wider changes the update includes a switch of the rating agency’s reference point for covered bond anchors to the new CR assessments.

The CR assessment reflects Moody’s view of the likelihood than an issuer would avoid defaulting on certain senior bank operating obligations and contractual commitments, including covered bonds.

In Aktia REMB’s case, Moody’s has assigned an unpublished CR assessment to the programme and it said that this has raised the covered bond anchor for the programme. The anchor is the CR assessment plus one notch.

Moody’s said the expected cover pool losses for the programme upon a covered bond anchor event are 11.7%, while the overcollateralisation (OC) in the cover pool is 23.4%, of which the issuer provides 12% on a committed basis. The minimum OC level consistent with the Aaa rating target is 8.5%, Moody’s said, adding that the numbers show that it is not relying on uncommitted OC in its expected loss analysis.

The rating agency said that the programme’s Timely Payment Indicator (TPI) remains “probable-high” and added that the TPI framework does not constrain the covered bonds’ rating.

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